How many wonderful discoveries!
Translated by Alexander Vasiliev
Good afternoon. Of the non-economic events of last week, we note the Wikileaks publications - in reality there are few interesting things there: reasonable people understand that the private documents of the diplomatic services contain unflattering epithets addressing the high ranks of different countries - and if these epithets were made public, the blame here is rather on the publisher than on the authors. Putin and Medvedev viewed as Batman and Robin have quite amused; while in reality, the tandem has only helped Chavez giving him $4 billion loan “to strengthen the defense”. In the USA, Somali terrorist was caught – he wanted to blow up a Christmas tree in Oregon. In the Central African Republic, dead Emperor Bokassa was acquitted - accusations of cannibalism were found libel: he kept the body parts of his victims in the fridge not to eat them, but “pursuing the symbolic aims” - multicultural tolerance commands to respect even such “national traditions”! Traditions are also of the concern of Peruvian President Garcia: he blamed the depression that affected his countrymen in the decline of his rating - and envied of the Brazilians, whose souls are filled with eternal carnival. The latter is also no stranger to some of the inhabitants of developed countries: one American registered his rights for… the moon - in response, a clever Spaniard has issued the property rights for sun and now wants to take fees on its usage. How many wonderful discoveries the liberal spirit brings to us!..
Malicious emission
Monetary markets. Consequences of the US emission are phantasmagoric - all the negative ones became active, while the positive are absent. Any signs of optimism immediately raise the interest rates - the yields of 5 - and 10-year bonds have recouped the entire autumn decline and returned to the levels of mid-summer; 30-year mortgages jumped to 4.7% per annum - although more recently it has almost fallen below 4.0%; bubbles continue to inflate in the stock and commodities markets. Attitudes to Fed’s manipulation are cooling – including those inside the central bank: hitherto the loyal executives express growing skepticism - last week the head of the FRB of St. Louis James Bullard, this year’s voting member (“it`s time to give up dual mandate and focus on price stability"), and Richmond’s Jeffrey Lacker, whose turn will come in 2012 (“Personally I would prefer not to start the second round of quantitative easing at all”). In general, times are getting hotter for Ben Bernanke - and if the consequences of his policies will continue to be cheerless, the opposition will block all his initiatives. From other central banks, we note the Thai, which suddenly raised interest rate by 0.25% to 2.00% per annum in an attempt to stop inflation. The ECB did not change anything - reluctantly extended the “non-standard measures of support”; answering the question whether the volume of bond purchases will expand, Monsieur Trichet said - watch for press releases on Mondays.
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Source: SmartTrade
European affairs are quieter - nothing has changed, but the market paranoia has its own laws. Ireland was given €85 billion - but the political situation dictates that the fate of European aid will be decided by a new cabinet, formed after the elections in January. Greece, pioneer tof he European stabilization fund, could not held for long: when it became clear that she will not repay the EU/IMF loans, postponement had to be requested - the Germans balked, but realized that there is nothing you could do and gave up; now the day of reckoning is shifted to 2024. S&P may lower the ratings of Portugal and Greece in the next three months. Bond yields of the eurozone’s sick countries went up again after unsuccessful auctions in Italy and Belgium (who joined the PIIGS club) - but by the end of the week the situation has calmed down, although the Spanish placement (yields of 3-year securities rose by 1.5 times compared to the previous auction) can hardly be called successful; besides, rumors are spreading about the problems of France and the German land banks. Markets are most afraid of Spain: the government there is suffering from an economic recession and high unemployment, banks’ balance sheets are filled with non-returnable mortgages (the amount of market supply for real estate is up to 6 times higher than the annual demand) - and in the next 2 years they will have to pay about €220 billion of obligations. Odds of the Spain’s sovereign default are estimated at 23%, yields on 10-year securities has doubled during November - and now the government is reducing the plan on net borrowing in 2011 by a third, hoping to recoup the losses through the sale of state property.
Currency markets. FOREX swayed up and down: at first euro went below 1.30, but then decided that it was too much - and returned to 1.34; it has recently been usual for euro-dollar to rally vigorously in the first day of each month – the same happened in December. The cross-rates of euro to yen, pound and franc also fluctuated significantly – while dollar was much calmer. Wait for the New Year’s fly!
Stock markets. Shares were flying in all directions: at the beginning of the week they collapsed; with the advent of December, optimism prevailed - and they surged; but they had to go south again on Friday. From corporate news we note the PepsiCo’s acquisition of the majority stake I the Russian firm Wimm-Bill-Dann – it is expected to slightly increase the profits of the US giant in the first year after the acquisition; the transaction value is estimated at $3.8 billion.
Commodity markets. Emission continues to put pressure on the prices of basic goods - after a short scare about the manipulations of stock exchanges with the dimensions of the collateral guarantees, the prices went up again. Brent crude oil reached $91 per barrel; industrial metals took back the lion’s share of the recent fall - and palladium even achieved a new maximum; gold went back to $1400 per ounce, and silver - to the recent peak. Cereals (wheat, rice, maize) resumed their climb, and oats updated the recent high; soybeans, vegetable oil, animal forage and beef also rose in prices. Among the other agricultural commodities we note cotton, which recently lost 30% of its value after the aggressive actions of stock exchanges; but optimism has returned - and the price is again near the maximum. India has reduced the exports of iron ore, and Australia postponed a number of mining projects - this boosted the prices; according to experts, in early 2011 ore price will rise by another 8-10% - and the end of this process is out of sight: thank you, Bernanke!
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Source: SmartTrade
Gangster narcissism
Asia and Oceania. India’s GDP has pleased with a growth of 8.9% y/y - but there is a suspicion that statisticians fake the deflator using the favourable figures: in October, wholesale prices were growing by nearly 9% y/y, and retail - by almost 10%. Things are not so good in Australia: GDP grew by 0.2% q/q and 2.7% y/y - worse than expected. In Japan, investment in the third quarter increased by 5% y/y – we have noted that the joy of July-September was due to a combination of temporary factors, which had already gone: it is expected that in the final quarter of this year the economy of Japan will shrink by 0.2%. This is possible: industrial production fell in October by 1.8% m/m - for the fifth time in a row; expectations for future are bleak. Business activity index (PMI) is ambiguous: both Chinese assessments of the manufacturing sector (official one and from HSBC) have grew to 7-8 months peaks - but the service sector sagged heavily; figures of Japan and Australia are in the recession zone – with the Australian figures even worse; in Japan, mood of small businesses is bad. Current-account deficit has widened in Australia in the third quarter - but the trade surplus increased in October. In October building permits fell in New Zealand and grew in Australia; Japan’s construction orders are in the red, while developments still in the positive territory. Employment in Japan started to decrease, unemployment increased; the rate real wages’ growth declined, retail sales went into minus in yearly dynamics - as well as real household expenditures: in general, it is clear that demand is weakening. And not only there – retail in Australia unexpectedly fell by 1.1.% m/m.
Europe. Swedish GDP surged by 2.1% q/q after rising by 2.0% in the previous quarter. The Swiss economy added 0.7% after growing by 0.5%. Eurozone’s GDP swelled by 0.4% q/q, half of which was provided by net exports and government spending – next quarter would be a harder time for them; annual growth rate declined from 2.0% to 1.9%. Economic sentiments in the eurozone in November reached a maximum since November 2007; business activity also looks good - as in Britain, where especially good was the sky-rocketing indicator of manufacturing sector. But the British demand is weak: applications for mortgages showed a minimum since February, while the annual dynamics of broad money supply M4 (-0.7%) was the worst on record. Inflation goes offensive everywhere – except for Italy, where producer prices fell by 0.2% m/m, and consumers - by 0.1%; in the eurozone as a whole there was an increase in wholesale prices by 0.4% m/m and 4.4% y/y, and in retail - by 1.9% y/y. Real estate cheapens in the United Kingdom: according to Hometrack, prices go down for 5 months in a row; on the Nationwide’s data, they have achieved a 9-months minimum. At the same time, the mood of the British consumer at version of GfK marked a low since July. In France, the construction sector fell into stagnation - actually, it does not shine anywhere in the eurozone; the labour market is also frozen – which could not be said about Germany, where unemployment is still falling, reaching the lowest level since December 1992. The eurozone’s unemployment rate rose in October - especially bad are the dynamics in Italy. Retail sales in Germany jumped by 2.3% m/m - but the yearly change have gone into a minus by 0.7%; in the eurozone growth is 0.5% m/m and 1.8% y/y. Budgets’ tightening will soon undermine the aggregate demand in Europe.
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Source: Eurostat
America. The state of the US economy is characterized by the Fed “Beige book” as “growth of expansion” - but households "do not have enough money”, and mostly have to buy basic necessities. Canadian GDP in September unexpectedly fell by 0.1% versus August; the economy has expanded by 1.0% during the third quarter - less than 2.3% in the second quarter; exports fell worsening the current account balance - and the most positive component was the engineering. In the United States there continues an increase in productivity due to staff cuts: it is good for corporate profits, but bad for the demand. Industrial orders in October fell by 0.9% after increasing by 3.0% in September. All of the regional indexes of business activity have improved in November - but the nation-wide figure for some reason did not do the same, although its level is still good. Canadian producer prices surged in October by 0.5% m/m - raw material rose in price heavily (+1.7%). In September, house prices in the USA dropped by 0.8% m/m according to S&P/Case-Shiller; according to RealtyTrack, in the third quarter house sales in the United States have collapsed - even the foreclosed houses were sold 25.1% worse than in April-July (and by 30.1% - than the year before); the rest of the housing sales decreased by 29% q/q and 31% y/y, the average price of “bank” house was 1.5 times lower than of the normal one, and their proportion in this year’s sales is between 25% and 30% (maximum is registered in Nevada - 54-62%). Pending home sales surged in October to 10.4%, but remained 20.5% below last year’s level; construction spending rose by 0.7% due to the Treasury’s spending on bridges and roads - but private housing is constructed poorly.
Holidays coming caused a surge of optimism among the Americans – November consumer sentiments from Conference Board jumped to a 5-months high, and the expectations component rose to a peak since May; to make the levels of current mood clear, we would only note that the proportion of those believing that it will be easy to find work now grew up to… 4% of the respondents. Some improvements are present in the weekly report of ABC News/Washington Post - but the confidence remained weak here too. Employment figures are only positive in the review of ADP – it says that in November the private sector created 93 thousand new jobs. Other indicators (Monster, Challenger, weekly statistics of initial applications for unemployment benefits) have noted the deterioration in the last month of autumn. In Canada, part-time employment has grown in November, but the overall has fallen; the state employed staff, while the private sector fired them. In the United States there were created 39 thousand new jobs instead of the desired 155 thousand; surprising was the decline in employment in the retail sector and in manufacturing; the unemployment rate jumped from 9.6% to 9.8%, while the more complete figure was 17%; indicators of long-term unemployment have increased; average wages remained in place – while prices were growing actively in late autumn. Car sales in November were at the good level of October; speaking of overall sales, leading retailers have responded positively to November - in general, according to the International Council of Shopping Centers, the growth amounted to 5.8% y/y, and even more for some: for example, sales of Abercrombie & Fitch surged by 32%; also good were the matters of networks Costco, Target and Victoria`s Secret - all this gave hope for a successful holiday sales season.
Russia. Demographic report of Rosstat for October showed a decline of both the birth rate (by 4.3 thousand people) and mortality (by 7.1 thousand) for the last year - the latter is back on the trajectory which was present before the heat and fires, while the former reflects the gradual arrival of childbearing age to the Lean Generation of 1990s ought to replace the much more impressive previous generations. Inflation continues its winning streak - in November, consumer prices rose by 0.8% m/m and 8.1% y/y; given the magnitude of government’s underreporting, one can speak of real monthly growth of 1% odd. Ministry of Economic Development accepted the inevitable - and expects the 2010 retail inflation at about 8.5%; which means that in reality consumer prices will add 12% or so this year. Among other events the president’s Address could have been noted - but it is empty, representing a mixture of nonsense and wishful thinking with no clear aims. Premier was much more picturesque during his speech in Berlin - in particular, he made fun of the energy policy of Germany: saying, they will eventually stoke firewood - and for these one will need to go to Siberia. Sberbank CEO Gref fell into narcissism - and made a survey of his subordinates: 27 out of 28 questions were devoted to his personality - including a request to comment on the thesis “Gref impresses me as a person”. Head of the Engels district (which is characteristic) in the Saratov region was accused of banditry, and the chief of Rosmolodezh – of a long-term commercial partnership with the bandits from Naberezhnye Chelny. In 2018 Russia will host the football World Cup, which sports authorities even hope win – it remains to be seen how they will achieve this. Perhaps with their usual arsenal of banditry, kickbacks, swaggering and narcissism? Or maybe with consistent innovative efforts of Batman and Robin?..
Pic: Artyom Popov, ITinvest
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